To Compete, Maximize Incentives
American competitiveness in international markets rivals AIDS in media visibility. Earlier this month, Business Week ran a 22-page special issue titled “Can America Compete?” Its carefully hedged answer boiled down to “maybe but not necessarily.” Time and Newsweek have highlighted the problem in cover stories.
According to taste, analysts emphasize inadequate devotion to research and development, obsession with short-run profits, adversarial relationships between management and workers, deficiencies in elementary and secondary education, currency disorders, the decline of the work ethic and even the absence of prayer in public schools.
Agreement is general that more attention must be devoted to product quality. Moreover, it is essential that factories be reorganized for flexible production, adroit responses to shifting consumer tastes. Sometimes explicitly, frequently implicitly, management is criticized as the culprit. Pundits indict American-style hierarchical organization as the enemy of innovation and creativity bubbling up from the factory floor, as is said to occur in Japan. The huge supervisory bureaucracy of corporate America testifies to distrust not only of ordinary workers but of their shop floor superiors.
Management’s critics are right. What realistic hope for employee loyalty and identification with corporate objectives can survive the wave of mergers and acquisitions that make it unclear to a white- or blue-collar worker leaving for the weekend whether he or she will still have a job on Monday or be reorganized into unemployment?
Nor does it improve morale when a Thomas Wyman is consoled for his involuntary departure as CBS head man with $4 million up front, an annual pension of $400,000 for the rest of his life and assorted additional benefits.
Pointless Name Changes
Companies with proud histories change their names. For no apparent reason, International Harvester has been reborn as Navistar and United States Steel as USX. Mysterious entities like Pacific Telesis, Unisys and Nynex emerge like new viruses.
The message to ordinary wage slaves is loud and clear. Their corporate employers, the usual exceptions like IBM aside, acknowledge no responsibility to their workers. Frequently, top management displays greater interest in its own rewards than those of stockholders, let alone employees. The Frank Lorenzos and Lawrence Tisches of the world are toasted as heroes for firing senior, expensive employees and replacing them on the cheap.
Rarely do the business media celebrate improved service for airline passengers or better network programming, possibly because such achievements rarely occur.
What can be done? It is futile to admonish the beneficiaries of current arrangements to change their spots. Highly paid senior executives are fitted with golden parachutes; investment bankers, corporate raiders and legal stars all are faring quite well, thank you. If others suffer--well, it’s a tough world out there. Genuine improvement in managerial performance demands institutional, political and legislative responses.
Here are a few suggestions.
- During the Reagan years, the antitrust laws have rarely been applied to mergers and acquisitions. William Baxter, Reagan’s first appointment as assistant attorney general in charge of antitrust, views size as benign. He has been quoted to the effect that it would not concern him if only a hundred corporations survived, each with 1% of the market.
Plenty of Evidence
In the next Administration--this one is a lost cause--Congress should strengthen antitrust legislation by requiring justification of any corporation’s proposed acquisition of an enterprise unrelated to its own business. Evidence is abundant that most conglomerate enterprises perform badly. Few corporations could convincingly prove a plausible gain in efficiency from adding to their holdings unfamiliar activities.
- Corporations should be required to compensate middle and junior management and clerical and production workers on the same scale as senior executives. Laid-off CBS employees could expect, of course, smaller pensions and cash consolation prizes than Wyman.
Such a legal obligation would do more than enhance corporate solidarity. It would also discourage the sort of lucrative employment contract that rewards managers for deficient performance.
- Solvent corporations should be legally compelled not only to give at least three months’ notice of their intention to shut down factories or other facilities, they should also be obliged to subsidize retraining and medical benefits for at least six months after layoffs.
- As further discouragement of speculative mergers and acquisitions, a 50% capital gains tax should be imposed upon any profits on stocks held for less than a year.
No doubt management is not the only culprit, but the Japanese have demonstrated notably in the Toyota-General Motors joint venture in Fremont, Calif., that Japanese managers can operate more efficiently with American workers and old technology than General Motors executives seem capable of equaling with robots, computerized machine tools and other state-of-the-art equipment. American-made Hondas match Japanese imports in quality.
My suggestions address themselves to the current incentive structure, which minimizes rewards for operating efficiency and maximizes them for financial manipulation.
Preaching does not avail. Rearrangement of economic rewards is essential if Business Week’s “maybe” yields to a more positive response.
